Conveyancing Amendment (Mortgages) Bill

Debate resumed from 28 February 2008.

Mr ROB STOKES (Pittwater) [11.00 a.m.]: I support the Conveyancing Amendment (Mortgages) Bill 2007. I commend my colleague the member for Ballina for bringing this important issue before the House. Given the current market conditions and the present and future trajectory of interest rates, we have seen an increase in foreclosures on mortgages. Sadly, they are likely to increase in the future. My community is characterised by a population of young families with large mortgages. They are finding it increasingly difficult to meet the repayments on their mortgages in the current financial environment. When clerking for one of this city's big law firms, I had the unpleasant duty of taking documentation to banks in relation to foreclosures on rural properties. So it is with emotion that I approach this bill. It is most important that as much relief, understanding and compassion is given to the unfortunate situation where borrowers are unable to meet their repayments and mortgagees seek to recover their interest.

The primary focus of mortgagees is to recover their interest in a property when borrowers are unable to meet repayments. It is a well-established principle that mortgagees in any situation have a fiduciary duty towards borrowers. Contracts must be entered into and executed in good conscience. There is strong precedent for this fiduciary duty in Petelin v Cullen and, more particularly, the Commercial Bank of Australia v Amadio. Those cases established that, in approaching borrowers, financial institutions are required to act in good faith and not act in a way that could be considered unconscionable. It is well established that lenders cannot take advantage of the weaknesses of borrowers. It is highly appropriate that the weakness of borrowers in circumstances where they cannot meet their loan repayments should not be used to the advantage of the mortgagees, who are focused on recovering their interests.

The object of the bill is to amend the Conveyancing Act 1990 to ensure that a mortgagee or chargee, when exercising a power of sale in respect of land subject to a mortgage or a charge, must take all reasonable care to ensure that the property is sold for not less than its market value. Although the bill ensures that the interests of the bank are secured when it gets its money back, it does not take into account the interests of the owner of a property by ensuring that the best possible price is obtained. If the best possible price is obtained, the owner can be returned to the best possible position out of difficult circumstances.

The bill is entirely consistent with established legal principles and the general notion of justice and fairness in relation to mortgagees, who often find themselves in a position of great power and responsibility when dealing with borrowers in trying circumstances. Unfortunately, those trying circumstances are likely to continue, given the recent projections of increased interest rates and house prices. We are likely to see more foreclosures. It is most important that not only should banks, mortgagees and chargees be required to act to the letter of the law, but that the law should be changed to require they exercise their fiduciary duty appropriately and act with justice and compassion when dealing with the sad situation that borrowers are increasingly facing. I commend the bill to the House.

Dr ANDREW McDONALD (Macquarie Fields) [11.05 a.m.]: The Government does not support the Conveyancing Amendment (Mortgages) Bill 2007 in its current form at this time. The Government has recently considered a Cabinet minute that seeks to amend the Real Property Act 1900 and the Conveyancing Act 1919. The amendments will increase the duty of care of a mortgagee more broadly than only when exercising a power of sale, as proposed in this private member's bill. It would be advisable to postpone dealing with the issue as a separate bill and address the issue more broadly as part of the Government's proposed amendments. This private member's bill is deficient in that it proposes increasing the duty of care owed by a mortgagee who exercises a power of sale over real estate.

The mortgagee's power of sale is not the only means by which a mortgagee can sell land where a mortgagor has defaulted. A mortgagee can use its powers under the mortgage to appoint a receiver to sell the land on the borrower's behalf or to sell the land pursuant to a power of attorney contained in the mortgage. The proposed bill is not wide enough to catch these alternative methods of sale. To address the mischief caused by a mortgagee selling mortgaged land for less than its real value, all methods of sale available to a mortgagee should be considered. The amendments proposed by the Government to the Real Property Act and the Conveyancing Act anticipate increasing a mortgagee's duty of care in another way.

As a measure to mitigate the risk of identity fraud, it is proposed to require the mortgagee to take appropriate steps to properly identify the mortgagor and ensure that he or she is the registered proprietor. To avoid unnecessary disruption to the banking industry, all proposed amendments in this area should be introduced at the same time. The Government's further amendments will ensure consistency in drafting and avoid unnecessary duplications. The Government does not support the current limited amendments proposed in the Conveyancing Amendment (Mortgages) Bill 2007 and intends to address this issue and a range of other related amendments in greater detail with more comprehensive amendments to the Real Property Act and the Conveyancing Act. I look forward to the debate on the Government's proposed bill in the very near future.

Mr GEOFF PROVEST (Tweed) [11.08 a.m.]: Once again, I am 100 per cent for the Tweed. I compliment the member for Ballina on bringing the Conveyancing Amendment (Mortgages) Bill to the Parliament. I am deeply concerned about this issue, particularly as it relates to the electorate of Tweed, which is a low socioeconomic area in New South Wales. This bill will raise the level of care. Currently, New South Wales has a lower duty of care, as opposed to Commonwealth legislation. This duty of care relates to people who are going through stressful situations.

In a recent media report in the Sydney Morning Herald on 28 March the Reserve Bank clearly said that currently in New South Wales 40,000 people are suffering mortgage stress. As we all know, in recent times we have had well over eight interest rate rises, and now 40,000 people are more than 30 days in arrears on their mortgage repayments. The article further states that 15,000 of those people are 90 days overdue on their mortgage repayments. These are people who are going through an enormous amount of stress—often there have been family break-ups and money is a major problem. What this legislation does is lift the level of care for such people. New section 111 of the bill states:

Certain duties of mortgagees and chargeesCertain duties of mortgagees and chargees

(1) In exercising a power of sale in respect of mortgaged or charged land, a mortgagee or chargee must take all reasonable care to sell the land for not less than its market value when it is sold.

This is the key objective of the whole amendment. I have seen in the electorate of Tweed a number of repossessions and a number of mortgagee sales, and nine times out of ten the properties are sold in a quick sale because sometimes in our local area banks are not the most generous or conciliatory people and they just want to get their money back. I understand that banks have an onus to see that there is a return on the money that people have invested in them, particularly the shareholders, but, at the same time, these people suffering mortgage stress are usually going through an emotional period and are really not focused. They have probably been working for many years; saving up and constantly trying to meet those mortgage repayments.

In many cases probably they have built up a fair amount of equity in their property. For example, if a person owes $150,000 on a home he or she bought for $300,000, the current legislation requires that the bank just get its money back—the $150,000. That means the property can be sold for far less than the equitable price of the house. It is ripping off the people in our local community who can least afford it. I am absolutely amazed that at times my colleagues on the other side of the House stand up and talk about rights for workers and so on, yet here is a group of hardworking people in New South Wales who are not afforded a level of protection when they really need it.

I am a little bit confused because the Commonwealth legislation virtually mirrors this amendment: it offers a higher level of protection than is currently available in New South Wales. I believe that in a previous session of Parliament this amendment passed through the lower House and was in the process of being debated in the upper House at the time of the election and it all fell into a little bit of a heap. I am emotionally involved in this issue because I have seen many people lose the equity in their homes that they have worked and strived all their lives to have. I commend the bill to the House.

Mr WAYNE MERTON (Baulkham Hills) [11.13 a.m.]: The Conveyancing Amendment (Mortgages) Bill 2007 should go beyond all realms and boundaries of politics. The bill contains a very simple proposition. Often, through tragic or other unfortunate circumstances, a mortgagee takes possession of a property and proposes to sell the property pursuant to the mortgage that was executed over the property. In regard to that situation the bill states:

In exercising a power of sale in respect of mortgaged or charged land, a mortgagee or chargee must take all reasonable care to sell the land for not less than its market value when it is sold.

There is nothing political about that: it is common sense; it is a sense of fairness; it is a sense of equity; and it allows people who are facing the tragic situation of losing their home or other property to get as much money out of the sale as possible. In other words, the bill says that a bank or other financial institution simply cannot sacrifice the property to get enough money to cover the debt and not worry about what happens to the money that is left over after the debt has been discharged—the borrower's equity. As the member for Tweed said, people might have a house that may be worth $300,000, and if there is a mortgage over that house of only $200,000, those mortgagors should be certain they can get their $100,000 back.

By imposing standards that require the mortgagee to exercise all reasonable care to sell the land for not less than its market value, those battlers, those people from Struggle Street, those hardworking Australian families that our colleagues on the other side of the House talk about so frequently, are certain of getting their fair share of the property, to which they are entitled. That is what this bill is about. I commend the hardworking member for Ballina for protecting these people. I am a little bit disappointed in members on the other side of the House because I think really within their hearts they are decent people and they understand how the people they represent and the people we represent are finding it hard at the moment with interest rates rising almost monthly and they are suddenly at the stage where they are in crisis. We say give them a chance and join with us in this legislation.

If Government members do not like parts of the bill they should move amendments today and let us deal with them because next Saturday, the Saturday after that and the following Saturday mortgagee sales will take place and this legislation will not be in force. The sooner the amendment becomes law the sooner those battlers will be protected, and that is what this bill is all about. I commend the bill to the House and I ask the Government to reconsider its position and join us. If the Government wants to improve the legislation, that is fine. We are here to seek justice for people under mortgage stress and we ask the Government to join our cause. We will be disappointed if the Government votes against this bill.

Debate adjourned on motion by Mr Michael Daley and set down as an order of the day for a future day.